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Inside the Market How this former economics professor is using REITs and dividend stocks to beat the market

Larry MacDonald is an economist, author and financial writer.

Before retiring from the University of New Brunswick two years ago, David Murrell, 67, was an economics professor researching policy issues. Now, he has more time to apply his research skills to his investment portfolio, which has returned 70 per cent since September, 2012. The S&P/TSX 60 Index has gained 40 per cent over the same period.

Mr. Murrell’s other retirement activities include volunteering at a church centre that helps low-income people, doing policy research on an unpaid basis at the university and relaxing at his cottage on the Miramichi River. The Globe and Mail had a chance to talk recently with Mr. Murrell about his investing process.

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How do you invest?

I am concentrating my registered retirement savings plan portfolio in three equally weighted areas: industrial real estate investment trusts, apartment REITS and dividend stocks. The income yield on the portfolio is about 5 per cent. And there have been some nice capital gains because high-yielding securities like those in my portfolio have attracted capital inflows from investors seeking alternatives to low interest rates.

Part of the performance since September, 2012, was due to currency moves. For about two years during that period, I was 70 to 75 per cent invested in U.S. dividend stocks when the U.S. dollar was appreciating.

Are you concerned that high-yielding stocks will suffer in the face of rising interest rates?

Not too much. I see the industrialized world economy as having slow growth over the long term, characterized by lower labour participation rates, low interest rates, increased urbanization and worsening income disparity. I see selected REITs as the best investments given long-term low interest rates and rising urban land prices.

This thesis could be wrong, of course. But I feel I can tilt my portfolio towards it thanks to the security provided by my fairly generous university pension. It allows me to take on some risk.

What are some of your holdings?

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One of my industrial REITs is Summit Industrial Income REIT; one of my apartment REITs is InterRent REIT; and I own the BMO S&P/TSX Equal Weight Banks Index ETF as one of three exchange-traded funds. I also have a small holding in Allied Properties REIT.

How about a brief history of your investing experiences?

As a young research economist fresh out of university in 1975, I was utterly inexperienced in investing when my RRSP was set up. I put small annual contributions solely into one gold mutual fund until about 1990. It was only then, when my stock adviser read the riot act to me, that I began to diversify into stocks.

Five years before retirement, I began to shift into stocks paying monthly dividends and income. I think monthly yields are not that bad an idea, especially for people like me who are transitioning their RRSP into a registered retirement income fund.

What were your best and worst moves?

My best move was cashing in my tax-free savings account and taxable accounts to buy a waterfront cottage on the Miramichi River. Because real estate is still cheap in New Brunswick, I think it makes sense for people to hold more of their wealth in the form of real estate – and they get to live in it.

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My worst move was putting money only into a gold mutual fund when I first started my RRSP. For much of the holding period, bullion prices were in decline.

Any advice for other investors?

I recommend investors stay with a bank-connected brokerage firm, where one can obtain good advice and read regular research reports. I also read Globe and Mail stock reports, available from its Watchlist feature.

I believe it is best to pick well-managed companies with low debt, good earnings, solid dividends and upward trends in stock prices. But as one approaches retirement, it would be better to shift more into higher-yielding dividend companies.

This interview has been edited and condensed.

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